The price of gold on the US futures market is now very different when compared to its spot price in Europe. A deficit of physical gold can arise in the US if all traders demand their gold to be delivered. However, London is prepared to help the US COMEX exchange solve the issue.
When trading on COMEX, the physical delivery of gold is a very rare occurrence. If a trader does insist on delivery, it's taken from the vault of the exchange's partner bank. Nevertheless, this physical supply of gold covers only a small portion of the 'paper' gold that is traded on COMEX.
According to recent data, the COMEX has a total of 1,795,846 ounces of physical gold, corresponding to 55.85 tons. This gold can always be delivered if required. At the same time, there are 548,504 open contracts at the moment, for a total of 1,706,038,143 oz., or 1,706 tons. If all these traders were to demand physical delivery of gold, the supply would be enough for only 3% of all open contracts. Some traders do, in fact, own their own gold and store it in bank vaults. The figure amounts to 215 tons. But even in this case, there's a high discrepancy between the physical and 'paper' gold. Only 15.8% of contracts are backed by real gold.
In the past few days, there's been an increase in the difference between the price of gold on the futures exchange COMEX and in the European spot market. For instance, on March 24 one ounce of gold was trading for $1,649 in the US and for $1,612 in Europe. The difference amounted to $37. There were even moments when London and New York prices differed by $70. The reason lies in the high fee charged by COMEX for the physical delivery of gold. This should act as a disincentive for traders who might want to ask for their physical gold. But, if traders keep insisting on delivery, the exchange will surely face trouble.
As reported by Reuters, London offered its help to the US. The UK is ready to send the necessary amount of gold to the US since there's a large supply in London. However, the precious metal must first be re-smelted into 100oz bars – the standard unit of mass for exchange contracts. The logical conclusion is that by owning your physical gold in the form of coins and bars, you can say that you truly own it, and are not dependent on anyone.
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Well, just like you mentioned, it might be very troublesome for exchangees to deliver physical gold which leads to rise in fee. I'd have mentioned that it's needless for someone who wish to keep his gold on the exchange to pay extra fee for delivery this is especially for gold traders.
Personally, I'd keep my gold safe in a bank, so far I have an evidence that I own the gold... I'm good.
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